The long-standing Japanese retail group, AEON Corporation (Malaysia) Bhd, has revealed its differentiation strategy in rewarding the customers with specialised goods, especially through its house brand, TopValu, in a recent interview with Business Today.

AEON operates two main business segments, namely the General Merchandising Stores (GMS) and the AEON shopping malls, while monitoring closely the newly-launched AEON Digital Bank.

The Managing Director (MD) of Aeon Malaysia, Mr Naoya Okada, noted that Aeon's 35 GMSs are not competing against other GMSs, but rather, "specialised category killers". In a sense, AEON is competing with other sellers in a specific category, not so much in brand recognition and popularity.

"For instance, when we talk about apparels, we instantly think about Pa–ni and Un–lo. Likewise, when customers want to add more electrical appliances to their household, the name that rings would be Harvey Norman," added the MD. Therefore, AEON must be more specialised to attract customers to shop for apparels and electricals at various AEON venues.

"We need to enhance customer experience. That is specialisation and a very important private personal expansion," he explained, adding that nowadays customers need a reason to come to AEON for their shopping needs as opposed to being drawn by the fact that AEON has many good offerings.

"For a long time, AEON's core competency is in the offering of 'many products'. But that has changed. You can search online to look for whatever products you wish to have. There are a lot of online category killers popping up," he explained.

"So, instead of focusing on more products for offering, AEON is saying 'we have different products that only we can offer (at the price and quality level). And that would be one of the strong selling points," emphasised Mr Okada.

Instead of following the traditional model of GMS, that has been in place for decades, he has stepped in just in time to transform the general merchandising into more specialised segment on categorical basis.

Just like AEON, many retailers are focusing on differentiation because other competing retailers are selling the same products across the market.

When asked about his forward growth plan for AEON Malaysia, he said AEON is not necessarily looking to go further or farther, but rather to accelerate the existing growth engine.

He noted that AEON's growth objective rests on two pillars namely the continued geographical expansion and also the revitalisation of the existing assets by drawing on a strategy of differentiation on the GMS segment.

When asked if there is any success in Japan that can be "translated" and implemented in Malaysia locally, he replied, "We are not going to copy and paste the same business model here because some areas are very country- or region-specific. AEON is a recognised name in Malaysia because we have largely localised the business model." AEON's predecessor, Jaya Jusco, opened the first store in Malaysia in 1985.

Mr Okada noted that local operations have been smooth so far without major hiccups but he is concerned about competition from local retailers and global brands.

In the past, big names like Tesco, Carrefour and Giant entered the Malaysian market around the same time and incidentally built up the hypermarket sector in the country. Though the competition from these brands have subsided following their exit from the local market, AEON Malaysia is still in the middle of braving through competition (from other retailers).

"Competition is good," said Mr Okada, adding that constructive competition helps AEON to strengthen the services offered and thus benefitting the customers.

From hindsight, it is evident that AEON has left a strong impression on the minds of Malaysian customers as the Japanese merchandising brand continues to stay strong.

Mr Okada, 41 years old, came to Malaysia in June 2022 and was first involved with the AEON mall operations before being appointed the MD of AEON Corporation (Malaysia) Bhd effective 1 March 2024.

His retail career started in 2015 when he joined AEON Japan. During his time with AEON Tokyo, Japan, he sealed a joint venture deal with international companies to set up the like of minimarkets in Japan.

Rather surprisingly, he is in fact well-versed in financial matters especially in the area of investment banking, having spent seven years with JP Morgan Japan (Tokyo Office) after the completion of his Master's degree in Public Policy from the University of Southern California.

Commenting on the justification of capital expenditure for the renovation of AEON malls, he said it's not unusual for retail business to be in a "continuous revolution" to create new "touch points" for the customers.

In this regard, Malaysia is like Japan, where some physical outlets have decades of presence at a good location with a good customer base, but consumers are looking for new value proposition for their shopping experience. That's why AEON needs the renovation to provide something refreshing for the customers after a while. In AEON's term, this is called "rejuvenation".

In view of the rising cost of living and highly-priced grocery goods, Mr Okada was asked if AEON has any plan to bring down the prices through negotiation with the suppliers. To this he replied, "We definitely have thought about that. Pricing is, however, largely decided by the customers. If you put your goods out there, and the price is too expensive, your customers will not buy them. But, if the price is reasonable and affordable, your customers will. So we don't set the price single-mindedly but have to be vocal by being the voice of the customers, reflecting their price perception. Of course, speaking to our suppliers is one of the ways to arrive at reasonable pricing. But suppliers have their own consideration and agenda."

Touching on matters related to meeting analysts' expectation of corporate performance, the MD stressed that it's important to look at the historical trail of cumulative performance figures instead of focusing on just the latest quarter. AEON is now into the last quarter of financial year 2024. Mr Okada said basing on macro-perspective assessment, AEON's performance this year is certainly better than last year.

In 2023, AEON generated a total of RM4.1 billion in revenue. As at September 26, 2024, AEON's market capitalisation stood at approximately RM2.2 billion.

On rising petrol prices, the chief of AEON Malaysia said the price increase would not directly impact AEON's performance, noting that pricing involves the consideration of multiple factors. It's not like the case where retailers just pass on the higher cost to the consumers by raising the price of their goods. For this reason, AEON is working in line with the global trend by focusing on the development of house brand, TopValu, to help consumers by offering affordable substitute goods.

To date, the penetration rate for AEON's house brand in the food category is less than 10% locally, around 5-6% in the Malaysian market. By comparison, Japan currently has around 20% of penetration rate for foodstuff, way lower than Europe's 30%-40%, but nearly at par with the 20-30% penetration rate achieved in the US.

The MD said AEON's house brand TopValu is eyeing for 20% foodstuff penetration rate for the Malaysian market.

On the ESG front, AEON is perhaps one of most recognised corporations in terms of the company's relentless efforts in Environmental Stewardship, Social Responsibility and Governance Excellence, especially in the area of environmental protection and restoration. Unsurprisingly, AEON has an outstanding 3.5-star overall ESG score awarded by local ESG rating agencies.

According to Mr Okada, a Sustainability Charter has been drafted in 2022 as a blueprint for AEON Malaysia towards achieving sustainability targets, including net zero emission by 2040.

Notably, from Malaysia, AEON started the corporate-sponsored tree planting initiative in 1990 that eventually rolled out to Japan and other regions. Since then, AEON has worked closely with Forest Research Institute Malaysia (FRIM) in planting more than half a million trees.

FRIM is a governmental agency under the Ministry of Natural Resources and Environmental Sustainability dedicated to the research and conservation of rainforests. FRIM is a valued contributor to global efforts in managing sustainable tropical forest ecosystem.

In addition to tree planting, AEON is applauded for its energy transition to solar power.

According to market sources, currently, 11 out of 28 AEON malls have solar photovoltaic (PV) panels installed, with four already fully commissioned.

AEON has successfully reduced its emission intensity by 51% in 2023 compared to the base year 2019, through the use of renewable energy via the purchase of green electricity and the installation of solar PV panels.